Siemens Gamesa cuts outlook, wipes out $5.2 billion in value

The Siemens Gamesa logo is displayed outside the company headquarters in Zumudio, near Bilbao, Spain on November 28, 2017. MADRID FRANKFURT, January 21, Reuters -- Shares in wind turbine maker Siemens Gamesa SGREN.MC fell on Friday after it cut its financial outlook for the third time in nine months, dragging down the market value of its rivals as well as German parent Siemens Energy ENR 1 n. DE Siemens Gamesa shares fell by 16.2% to their lowest since July 2020 and wiping out 4.6 billion euros $5.2 billion in market value.

Profit margins at wind turbines have been squeezed due to the surge in costs for vital materials such as steel, forcing companies such as Siemens Gamesa and Danish rival Vestas VWS.CO to increase their prices.

Jacob Pedersen, a Sydbank analyst, said the companies were facing a perfect storm. Their costs have gone up for the wind turbines they were paid for a few quarters ago and this is a huge challenge. Vestas and the smaller German rival Nordex NDXG.DE both fell 8% on Friday.

Siemens Energy was forced to cut its outlook on Thursday, as a result of Siemens Gamesa's warning, raising pressure on Chief Executive Christian Bruch to buy 33% of the wind business it doesn't own, so it can get a better grip on the problems.

Bruch said last year that it was too early to talk about buying the remaining shares, but it would become an issue at some point.

The 33% stake is now worth about 3.8 billion euros, about half a billion less than on Thursday and down from 6.1 billion euros when Bruch made the comments in May.

Siemens Gamesa said that they had reconsidered how to decide on projects after reporting first-quarter loss of 309 million euros, and that the supply chain glitches due to the pandemic would last longer than previously expected.

Chief Executive Andreas Nauen said that our development timeline was a bit optimistic. Logistics costs have been kind of exploding in the last few months. Siemens Gamesa said that its core profit margin could fall to minus 4% this year and would only reach 1% at best, whereas previously it had been expecting a margin of 1% to 4%.

Siemens Energy, which makes turbines for gas-fired power plants, heat pumps and power transmission equipment, trimmed one point off its margin forecast, saying it would not go above 4%.

Nauen said that negotiations with clients about increasing prices were difficult because customers had their own limits.

Some customers originally said that doesn't fly when we push back they finally sign because the project is approved with our turbine and they have little choice, he said.

At the end of December, Siemens Gamesa's order book was worth 33.6 billion euros but 2 billion euros of those orders did not have a positive margin, the Chief Financial Officer Beatriz Puente said.